How do you calculate average inventory?

Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2. For more accuracy across a year, average the month-end values instead: sum 13 points (opening balance plus 12 month-ends) and divide by 13, which smooths out seasonality that a two-point average misses.

What is the beginning inventory formula?

Beginning Inventory = COGS + Ending Inventory − Purchases. It's the ending inventory identity rearranged — useful when you know what you sold and what you have left but didn't record an opening balance. In practice, beginning inventory is simply the prior period's ending inventory.

Why does average inventory matter?

It's the denominator of the inventory turnover ratio (COGS ÷ average inventory) and the basis for days sales of inventory and carrying cost estimates. Using only the ending balance instead of an average can badly distort these metrics if your stock level swings during the period.

Should average inventory use cost or retail value?

Cost. Inventory is carried at cost on the balance sheet, and the ratios it feeds (like turnover, which divides by COGS) are cost-based. The valuation method you use — FIFO, LIFO, or Weighted Average — determines that cost, so consistent method choice matters here too.

Average Inventory Calculator

Two-point or monthly average, plus the beginning inventory formula — the numbers your turnover and carrying-cost metrics depend on.

Average Inventory

Beginning inventory ($)

Ending inventory ($)

Need this valued correctly? Use the ending inventory calculator.

More accurate: average monthly balances instead

Month-end inventory values, comma-separated (include the opening balance)

Beginning Inventory Formula

Didn't record an opening balance? Reconstruct it: Beginning Inventory = COGS + Ending Inventory − Purchases.

COGS ($)

Ending inventory ($)

Purchases ($)

The Average Inventory Formula

Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2

The two-point average is the standard for annual metrics: $100,000 opening plus $150,000 closing gives a $125,000 average. Its weakness is seasonality — if stock balloons mid-year for a peak season and drains by year-end, two points miss the swing entirely. That's when the monthly average (13 data points: opening balance + 12 month-ends, divided by 13) earns its extra bookkeeping.

Where Average Inventory Is Used

Inventory turnover ratio — COGS ÷ average inventory; the single most-watched inventory efficiency metric.
Days sales of inventory — (average inventory ÷ COGS) × 365.
Carrying cost estimates — typically 20–30% of average inventory value per year.
Insurance and lending — banks and insurers ask for average, not point-in-time, stock values.

Getting the Inputs Right

Both inputs should be at cost, valued by a consistent method. Remember that FIFO, LIFO, and Weighted Average put different dollar values on identical stock — in our standard example the same 130 units are worth $1,820 (FIFO), $1,360 (LIFO), or $1,589 (Weighted Average). Switching methods mid-stream makes your average — and every ratio built on it — incomparable across periods. See the method comparison guide for choosing well once.

Frequently Asked Questions

How do I find beginning inventory?

It's the prior period's ending inventory. If that wasn't recorded, reconstruct it with the widget above: COGS + ending inventory − purchases.

Two-point or monthly average — which should I use?

Two-point is fine for stable stock levels and is what most published ratios assume. Use the monthly version if your inventory swings more than ~20–30% within the year (seasonal retail, agriculture, event-driven products).

Units or dollars?

Dollars (at cost) for financial ratios; units for operational planning like reorder points. This page works in dollars — for unit-level planning see the reorder point calculator.

Inventory Turnover Calculator

The ratio this average feeds into.

Ending Inventory Calculator

Value the closing balance correctly first.

COGS Calculator

The other half of the turnover ratio.

Accurate Balances, Every Period

Upload your transactions once — get correctly valued beginning and ending balances under FIFO, LIFO, or Weighted Average, every period.

Start Free — 500 Transactions Included